Britain’s manufacturers are planning to shed jobs and put investment on hold after the shock result of the Brexit vote provided the sharpest blow to business confidence since the global economy hit rock bottom in during the great recession more than seven years ago.
In a poll of more than 500 companies taken in the two weeks immediately after the 23 June referendum, the CBI said member firms were in cautious mood as they sought to work out what the decision meant for access to Europe’s single market.
The employers’ organisation said the “cloud of uncertainty” hanging over industry was causing firms to mothball investment plans and expect recent strong output growth to ease, and to cut staffing levels.
With manufacturers taken by surprise by the referendum result, the CBI said the number of firms citing uncertainty about economic and political conditions abroad as a constraint on exports was at its highest since 1983.
The gloomier tone to the quarterly industrial trends survey followed a period when manufacturing appeared to be doing better after a difficult start to 2016. The CBI had provided strong backing for the remain side during the referendum campaign, reflecting the views of the majority of its member companies.
The findings of the survey were seen by the City as all-but guaranteeing action by the Bank of England to boost the economy when its nine-member monetary policy committee meets next week. A cut in interest rates and the resumption of the Bank’s quantitative easing programme are seen as likely options.
Rain Newton-Smith, the CBI’s chief economist, said: “Manufacturers picked up the pace over the second quarter, with output growing solidly. We’re also seeing encouraging signs of a boost to export competitiveness from a weaker sterling.
“But it’s clear that a cloud of uncertainty is hovering over industry, post-Brexit. We see this in weak expectations for new orders, a sharp fall in optimism and a scaling back of investment plans.
“So, it’s important now for the new government to steady the ship with a plan, and a clear timetable, for negotiating the UK’s relationship with the EU. This, along with a renewed focus on industrial strategy, will help give firms the confidence they need to grow and create jobs.”
Only 5% of the businesses surveyed by the CBI said they were more upbeat about their future prospects than they were three months ago while 52% said they were more pessimistic. The gap of -47% was the biggest since January 2009, a period when global trade and industrial production was declining at its fastest rate since the great depression of the 1930s.
Total order books are expected to be flat over the next quarter, although exporters believe they stand get more business because the fall in the value of the pound will make their goods more cost competitive. On the downside, CBI members believe the higher cost of imports will push up their costs.
The survey found that firms were planning to cut spending on both new buildings and plant and machinery. In the previous industrial trends survey a balance of 6% of firms said they intended to invest more in buildings and a balance of 17% had plans for new plant and machinery. In the latest survey, these balances had fallen to -23% and -5% respectively.
Paul Hollingsworth, UK economist at Capital Economics, said the sharp drop from +23 points to +6 points in the balance of firms expecting output to rise over the coming three months suggested the sector was on course to contract.
He said: “Taken together with last week’s flash manufacturing PMI, the evidence is mounting that the economy has taken a hit from Brexit. But it is still early days and the survey evidence so far could reflect an initial shock factor. We will have to wait a while longer before we get a clearer picture of just how big the immediate impact has been.”
